market insight

I recently appraised a custom home, and when the order came through the property looked overpriced. I thought, “Yep, I’m going to look like the bad guy when this one appraises too ‘low'”. However, after doing all my research AND asking all the right questions to the listing agent, this property was clearly worth slightly more than the contract price. Ultimately I left the transaction feeling a bit curious why the agent did not offer more information about the property until I asked. At the end of the day her insight was actually vital since I found out there was a back-up cash offer above asking, one other full-priced conventional offer, and another listing coming on the market priced at a similar level – not to mention the feedback on the layout, landscaping, and location. The agent spent so much time, effort, and money to market this listing, but when it came to communicating with the appraiser, her approach was hands-off.

A “cheat sheet” to communicate with appraisers: What if you had a document on your desktop to simply address some of the questions appraisers tend to ask? You could quickly fill it out, and then email it or give it to the appraiser in person. Check out the document below, and you can download in WORD or a PDF.

This document addresses how the market responded to the subject property, and it also gives an opportunity for the listing agent to share any insight about the neighborhood, school district boundaries, market trends, important reasons buyers might be looking in the neighborhood (that the appraiser may or may not know), or insider knowledge about the subject property or street. Remember, this is potential market data, so it can be important for the appraised value. Also, you can look like even more of a rock star to your client when your client sees how intentional you are with the appraiser.

Some quick tips:

Save this document to your desktop and use it for each listing.

Tell the truth in everything you write.

Feel free to skip, delete, or add any categories.

Take 10 to 15 minutes to answer questions.

You don’t need to write a novel, but it’s okay if the document ends up being more than one page (try to keep it less than two though).

Remember, this information is about sharing facts instead of pressure to “hit the number”. This is exactly why it’s okay to share this type of information.

Try to avoid subtle pressure statements like, “Please get value as high as possible”, or “We really need this one to work out”, because that comes across as trying to steer the value.

Be specific about upgrades. For instance, instead of saying, “The house was remodeled throughout,” unpack what that means and when any remodeling was done (if you know).

If you don’t feel comfortable providing sales or listings to the appraiser, that’s okay. However, if you do provide sales, make sure they are actually competitive to the subject property. If you know the sales well, you can always write out any differences at the top of the MLS sheets. I recommend saying “here is data I used to price the property” instead of “here are your comps”. If the appraiser doesn’t want to take any sales from you, maybe the appraiser would still take this information sheet.

Is there anything you’d tweak about this document? Speak up or offer constructive feedback below. If there is enough response, I can post a second round of an improved document in a few weeks. I’m all for better communication, and I would LOVE to get more information like this on a regular basis.

Questions: Do you think this document would be useful? Anything you’d add or take away?

Real estate would be so much easier if we had a little black book to tell us how much each feature of a home was worth. Imagine a list of values for things like bathrooms, bedroom count, garage spaces, square footage, extensive landscaping, built-in pools, etc…. The truth is I get asked all the time how much a particular something is worth, and my answer is very often “it depends”, which I know can seem frustrating. But this is the best answer because what something is worth is based on the location.

Location Matters: It’s Real Estate 101 to know location plays an enormous role in shaping value. For instance, if you took the same house from Sacramento and put it in San Francisco or Hollywood, it would be worth substantially more in those cities. We all know this, but one thing we sometimes don’t consider is how the value of certain upgrades or features is also strongly influenced by location. Let’s consider the following examples.

A) Kitchen Remodel: Imagine a $50,000 kitchen remodel. You could literally put the same kitchen in a $150,000 neighborhood and a $500,0000 neighborhood, and the contributory value would be less in the lower-priced neighborhood and more in the higher-priced area. Why? Because buyers in the $150,000 neighborhood do not expect a kitchen that costs 1/3 of the entire home’s value, and affordability may also be a factor. In contrast, the remodeled kitchen would be much more acceptable in the $500,000 neighborhood, which means it would command a higher premium. This is why when someone asks, “how much is a kitchen remodel worth?”, the answer is, “it depends”, because the value of the kitchen is tied to the location.

B) Extra Bathroom: During a recent appraisal in a classic area of Sacramento the subject property had three bedrooms and one bathroom, whereas many of my comps had three bedrooms and two full bathrooms. How much is that extra bathroom worth? At the end of the day I ended up subtracting $25,000 from the comps with two bathrooms because that’s what it seemed the market was willing to pay. But this adjustment wouldn’t apply to every neighborhood because it would be WAY TOO HIGH in many other areas where the adjustment could easily be $10,000 or less. The value for a bathroom might also vary depending on whether we are talking about the difference between 1 and 2 bathrooms, 2 and 3 bathrooms, or 3 and 4 bathrooms.

C) Square Footage: How much is extra square footage worth? This is one of the most striking examples of how important location is for determining value. In some neighborhoods buyers could easily be willing to pay more than $100 per sq ft for additional square footage, but other neighborhoods might show a modest $30 per sq ft. This effectively means buyers could shell out $20,000 for an extra 200 sq ft in one neighborhood, but in a different community buyers might only pay $6,000 for the same 200 sq ft. Remember, we are not talking about the cost to build the extra 200 sq ft, but the amount buyers are willing to actually pay for the additional space in the resale market. As you can see, there is no standard square footage adjustment because the value of extra space is tied to the location. Read How appraisers come up with square footage adjustments for further insight.

The Big Reason why a Black Book Doesn’t Exist: It would be nice if a little black book of value did exist, but in real estate specific values are tied to specific neighborhoods and price ranges. This means it’s impossible to generalize about the value something might add because the same thing can be more or less valuable depending on where it is located. The danger of course is when an appraiser or real estate agent gives the same value adjustment for features regardless of the neighborhood.

Questions: What other examples have you seen where value is substantially different depending on location? Any further insight, questions, or stories to share?

Disclaimer

First off, thank you for being here. Now let's get into the fine print. The material and information contained on this website is the copyrighted property of Ryan Lundquist and Lundquist Appraisal Company. Content on this website may not be reproduced or republished without prior written permission from Ryan Lundquist.

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The information on this website is meant entirely for educational purposes and is not intended in any way to support an opinion of value for your appraisal needs or any sort of value conclusion for a loan, litigation, tax appeal or any other potential real estate or non-real estate purpose. The material found on this website is meant for casual reading only and is not intended for use in a court of law or any other legal use. Ryan will not appear in court in any capacity based on any information posted here. For more detailed market analysis to be used for an appraisal report or any appraisal-related purpose or valuation consulting, please contact Ryan at 916-595-3735 for more information.

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